Indian Indices Trade in the Red

Mon, 26 Sep 11:30 am

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After opening the day on a flat note, the Indian indices registered losses and went on to trade in the red. Sectoral indices are trading on a negative note with stocks from the telecom, banking and finance sector witnessing maximum selling pressure.

The BSE Sensex is trading down 189 points (down 0.7%) and the NSE Nifty is trading down 52 points (down 0.6%). The BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading marginally higher. The rupee is trading at 66.71 to the US$.

GNA Axles made a spectacular debut today by listing at Rs 248 per share. This records a 20% premium to its issue price of Rs 207 per share. The Rs 1.3 billion worth of initial public offering (IPO) of the auto component maker was sold between September 14 and September 16. The IPO was oversubscribed nearly 54.8 times.

These are the kind of numbers that typically only come in when the IPO season is in full swing. Unlike winter and summer, the IPO season doesn't follow a yearly pattern. It comes when the markets are rising and investors are willing to pay up. Slightest sign of a weak market, and it is quick to go away too. And so does the hype around many of the stocks, especially the fundamentally weak ones.

IPOs have kept the Indian markets busy of late. Listing gains and over subscription of the issues have caught the eye of market participants. With this euphoria, there are many more IPOs lined up in the coming days. This begs the question: What should be one's approach towards IPOs?

In our view, one should not get swayed away by the buoyancy surrounding IPOs. Instead, what one should look for in IPOs is the fundamentals of the business and the attractiveness of valuations.

We at Equitymaster have always recommended IPOs cautiously. And Rahul Shah, co-head of research at Equitymaster, best explains our rationale behind this approach. As he wrote in one of the editions of The 5 Minute WrapUp... 'We know what a dirty game the IPO business is. We've seen it over and over again: It's a game where the odds are stacked against investors. So for us, the equation is simple. We'd rather face criticism in the short run than see our subscribers lose money over the longer term. We weren't afraid to do this during the hot IPO days of 2007, and we're not afraid to do it today.'

If you ask us, every IPO needs to be evaluated on its own merit. When there is a need to go through a checklist for buying stocks, why not so in the case of IPOs?

There are several big IPOs in the pipeline in the last few months of 2016. In case you wish to run them through a handy checklist, we have something for you.

Download our Handbook of IPOs to be able to pick only the right ones for you.

In another news update, Niti Aayog Vice-Chairman Arvind Panagariya recently stated that gross domestic product (GDP) number will be over 8% in subsequent quarters during this fiscal. As per a leading financial daily, Arvind Panagariya said a good monsoon, reforms and timely decision making at the Centre will definitely push India's growth beyond the 8% mark in subsequent quarters of this fiscal.

Please note that India's growth rate slipped to a six-quarter low of 7.1% in April-June. This was seen due to subdued performance of mining, construction and farm sectors. The figure was 7.9% in January-March. Last year, Indian economy expanded by 7.5% in the April-June quarter.

Vivek Kaul recently wrote on India's economic growth in one of his issues from the Vivek Kaul's Letter titled India's Economic Growth Fails the Arvind Subramanian Test (subscription required). Vivek here explains that if India did not grow by 6.6% in 2013-2014, there is no way it is currently growing at greater than 7%.

In the letter, Vivek addresses a range of big issues such as the government's handling of oil prices, the mess in public sector banks, the current state of India's real estate bubble...and a lot more!

In fact, as you read this, Vivek has just come out with a video that details all...including how these macro trends could impact you. Click here to know more.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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